COVID-19 and the Fraud Triangle

By Sachin Maharaj

The COVID-19 pandemic has only worsened an already bad economic climate for many countries around the globe. The forced lockdown and restrictions have brought many world economies to a standstill.

It is widely expected that many businesses will not recover from the impact of forced closures. Many jobs will also be lost in the process. Companies are quickly coming to the realization that many overhead expenses can be dispensed with, without affecting productivity significantly, this will be critical to ensure survival.

The unfortunate reality is that coupled with these growing challenges, more so, from a humanitarian and economic perspective, such an environment creates the “perfect storm” for fraud being committed. The famed Fraud Triangle of criminologist Donald R Cressey to explain why people commit fraud.

Fraud Triangle

Pressure

  • The number of unemployed individuals is increasing with layoffs.
  • Furloughed employees may not be able to make ends meet
  • Stock prices of companies are being affected, dramatically affecting shareholder wealth and affecting the perceived value of retirement funds.

Opportunity

  • Many companies are downsizing to ensure their survival. However, this is impacting on internal controls, checks and balances.
  • There is an increasing number of individuals working remotely, this creates increased threats from a Cybercrime perspective.
  • Internal controls are reduced, resulting in less checks and balances.  This allows people to conduct fraudulent activities without detection

Rationalization

Many companies have withdrawn incentives, bonuses and benefits. This has increased the rationalization for committing fraud which has only been exacerbated by instances of reduced pay.

  • I am likely to be laid off, so let me take what I can while I am still at the company.
  • I am working hard in a compromised environment.  The bosses don’t care for our well being. let me take a bonus to make it worthwhile

What can be done in the Interim?

There are many traditional interventions that could be employed but testing times like the present require a much more focused and proactive effort to detect and prevent fraud.

Fraud Risk Assessments

The purpose of a fraud risk assessment is to help a company identify what makes it most vulnerable to fraud. Through a fraud risk assessment, the company is able to identify where fraud is most likely to occur, enabling proactive measures to be implemented to reduce the chance that it could happen.

Testing using Data Analytics

Data Analytics allows for the identification of outliers, anomalies trends and exceptions within data. These assist in identifying red flags and address areas that pose the greatest risk; this is to find potential footprints of fraud or data error.

Specializing in the creation of custom models and analyses, the Forensic Restitution team works to identify, expose and demonstrate relationships, trends and patterns within complex and seemingly disparate data sets. This information can be used to aid litigation or criminal investigations.

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